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issue: January 2005 APPLIANCE Magazine

Appliance Industry Association Forecasts - Air-Conditioning & Refrigeration Institute
2005 Outlook is Bright

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by William G. Sutton, president, Air-Conditioning & Refrigeration Institute (ARI)

For the first time ever, manufacturer shipments of central air-conditioners and air source heat pumps—buoyed by continued growth in housing and coupled with a strong replacement market—are expected to exceed 7.2 million units. Year-end figures, due out in February, may show that shipments in 2004 eclipsed the 6,807,262 units shipped in 2003 by more than 5 percent to achieve a third consecutive record year.

William G. Sutton

Even if final numbers fall short of a record 7.2 million units, it would still be a record year. In addition, shipments in June reached 1,081,147, for a new single-month record. Compare that with the 1.6 million units shipped during the entire 12 months of 1982 for a clear illustration of the increasing value of comfort control to households nationwide.

Annual shipments have exceeded 5 million units every year since 1995. More than 85 million central air-conditioners and heat pumps were produced for use in the U.S. during the last 20 years, leaving a vast inventory for replacement in future years.
New homes sales continue at a healthy rate thanks to tax cuts and a generous U.S. Federal Reserve Board, which seems in no rush to raise short-term interest rates. Mortgage rates are expected to rise only moderately in 2005. Thirty-year fixed-rate mortgages were still a bargain, averaging slightly less than 6 percent throughout 2004. A vibrant economy, a repeat of 2004’s early hot spring weather, and the transition to the 13 SEER minimum efficiency level by Jan. 23, 2006, could propel the industry to another record year. The longest expansion America has ever seen is also helping other HVAC/R industry sectors.

After 2 lackluster years, unitary large equipment improved in 2004, with shipments up by more than 4 percent over 2003 levels. Proof that the economy is improving can be found throughout the HVAC/R industry. Water-source heat pumps shipments were up 9 percent. Package-terminal air-conditioner shipments rose 10 percent, as well as package-terminal heat pumps, which were up 12 percent. The economy’s strength was also seen in an 11-percent gain in heating and cooling coil shipments and a 6-percent gain in central station air handlers.

Phase out of chlorofluorocarbon (CFC) chillers still remains a long-term task, assuring steady shipments by manufacturers of non-CFC replacement units. ARI’s annual survey of chiller manufacturers showed, as of Jan. 1, 2004, that U.S. building owners had replaced or converted 43,774 units, or 55 percent of the original 80,000 CFC chillers, since the early 1990s. New non-CFC chillers reduce maintenance costs, use less electricity, and can pay back the cost of replacing an old CFC chiller in 5 years or less, according to the U.S. Environmental Protection Agency (EPA).

The pace of the CFC chiller phase-out has been slower than expected due in part to U.S. federal tax laws that require depreciation of 39 years for chillers. Congressman Peter Hoekstra (R-MI) and our partners at the Air Conditioning Contractors of America (ACCA) have introduced H.R. 3953, The Cool and Efficient Buildings Act. This bill would accelerate the depreciation period from 39 years to 15 years for new HVAC/R equipment installed in non-residential properties. This would help save energy by phasing out older, less-efficient equipment, and reducing operating costs for building owners.

According to Representative Hoekstra, “The current 39-year depreciation period on HVAC/R systems is not reflective of their average life span, and it is not cost effective. The Cool and Efficient Buildings Act will provide an incentive for businesses to invest in new equipment, which will save businesses money in the long run and provide another stimulus to the U.S. economy.”

The legislation notes that this depreciation change would decrease the U.S. energy consumption by taking advantage “of the remarkable increase in energy efficiency due to technological advances” achieved by the air-conditioning industry.

A wide range of non-residential buildings, including offices, malls, airports, and factories, would qualify for the new depreciation rate. These are buildings where HVAC/R equipment, from large tonnage liquid chillers to unitary air-conditioners and heat pumps, play a key role in increasing productivity and making the use of heat-sensitive computers and telecommunications gear possible.

The outlook for shipments of new large tonnage liquid chillers is brighter now than in past years, thanks to better prospects for the economy and the projected improvement in office, mall, hospital, airport, factory, sports complex, and government building, and institution construction and retrofits.

A growing economy in the U.S. and continuing improvement in Europe and Asia could result in another record year for many HVAC/R industry sectors. In short, prospects appear favorable for a continuing strong market for new housing and the huge inventory of equipment needing replacement should assure steady shipments over the long-term.


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